Tuesday, May 26, 2009

Pulp Innovation Chapter Eighteen

"We believe there are several key factors for innovation success in any business" I continued. "Let's review several of those now".

The presentation flipped over and I presented on the first topic - strategic intent.

"In my experience, we find that the firms that have the most success from an innovation perspective are those that have clear 'strategic intent'. What I mean by this is that they have a clearly articulated vision and that people within the organization understand the company's strategy and goals. We often use the example of Apple. Apple didn't create the cell phone, or PC, or portable music player. They entered all of those markets after the markets had been proven and innovated around customer experience. If you look at Apple's successes - and failures - you'll see that they innovate around a core interest or capability - customer experience."

This seemed to get a few heads nodding, but I knew I wouldn't get the question I normally get when we do this presentation for mid-level managers. Inevitably, when we bring up this point to mid-level or more junior managers the question will come - "can you describe for us what our strategic intent or core strategy is?" usually in a joking manner. The disconnect between what a management team thinks it is communicating and what their teams hear and implement is often a wide gulf.

Next I addressed specific goals for innovation.

"Each quarter you identify revenue and cost goals for Wall Street and work diligently to achieve those goals. While innovation is often talked about as important, do you have specific, measurable innovation goals that you can report as well? For instance, the number of ideas generated in a quarter, the number evaluated, number of prototypes or pilots conducted, number of people within the organization active in an innovation program? Generally speaking, most firms talk about innovation but until there are metrics and measurements associated with innovation, it is difficult for innovation to rise to the level of importance it requires. Frankly, what we'd like to see is a specific innovation goal in an annual plan - innovation will be responsible for driving X% of our revenue in the upcoming year. Then, your intent and goals are clear and it's easier for people to understand what they are measured on and what's important."

I glanced around to see if there were questions or comments after this slide. I knew the points I was making were both obvious and things that Accipiter didn't do well, so there was a significant amount of shuffling and shifting in the seats. A few hostile glares, but, to their credit, a number of very engaged individuals as well.

At this point in the presentation we usually talk about the three "C's", three major roadblocks to innovation in any organization. Those are culture, communication and compensation.

"Most firms we work with want to kick off an innovation project as quickly as possible. However, from our experience we can tell you that until you address these three 'C's', your projects will falter. Culture, communication and compensation have a direct correlation with what the innovation teams can accomplish, and where they spend their time. Let's look at compensation for a minute. If we ask people to join an innovation program, but don't change the way they are evaluated (which indicates how they will be compensated) then we've set them up for failure from the start. Asking them do to some risky, uncertain work that isn't part of how they'll be evaluated is asking them to make tradeoffs between their existing jobs, which are well defined and the compensation and evaluation programs are intact, and innovation, which has little definition, no clear evaluation or compensation program. In an economy like ours, who is going to move into a short-term, uncertain position with little definition of compensation or evaluation metrics? Yet time and time again we see firms ask people to engage in innovation projects without changing their compensation or evaluations."

Briggs was fully engaged at this point, almost leaning over the table to demonstrate his agreement with what I had just said. Again, it is an obvious and often overlooked point - don't ask people to risk their roles and positions without some assurances that the work they'll do will be valued and rewarded by the company.

"Let's look also at culture. For the last decade most firms have focused on Seven Schema, Lean and operational excellence. That means an emphasis within most firms on cost cutting, consistency and elimination of variance and risk. So the cultures have become hardened to asking questions about different or innovative ways of doing things. Innovation by its very nature introduces risk, variance and uncertainty. So over the last ten years most firms have created cultural roadblocks to innovation, reinforced by training and compensation structures. Most of the firms we work with show evidence of this. The corporate cultures reject 'new' ideas or anything that introduces significant change. Consistency is rewarded, change, especially disruptive change, is avoided. So where does disruptive change come from? Third parties, firms that enter the market from another space, or start ups that have little investment in the status quo. Most real disruptions are forced on an industry from the outside, rather than created from within. Look at music distribution. A few years ago, if I had predicted that Apple would be one of the largest music distributors, you would have laughed at me. Now it seems obvious, and Tower Records and the other distributors who distributed physical media are on the ropes. Why? Their corporate cultures blinded them to the obvious fact - consumers were demanding greater ease of use and interactivity with their music."

I glanced at my watch. I'd hit many of the big issues I wanted to cover, but I needed to bring the message home with a few closing remarks. There didn't seem to be a groundswell yet for the bum's rush, so I decided to move on to my closing remarks.

OVO is an innovation consulting firm working with Fortune 5000 firms to create repeatable,
sustainable innovation capabilities and disciplines in the "Front End" of Innovation. We provide innovation consulting and innovation training.